Tuesday, December 2, 2014

With the price of oil dropping like a stone, and airlines
posting magnificent profits, is it not about time that we talked about “Fuel
Surcharges”?

Airlines introduced these insidious fees in February 2004/5
at a time that the oil price increased from about $50 to $75 in a very shortperiod. The general idea, at least the one proposed to the US regulatory
authorities, was that it would be too complex to refile the thousands of
airfares so quickly, and that a surcharge could be introduced to combat the
huge expenses that such fluctuations in fuel caused.

Fair enough, one might argue, but a surcharge is
inherently a temporary measure.

Airlines, like other users of commodities, have means to
hedge their exposure to oil cost fluctuations, and should use them to
understand their costs accurately. Once the fuel prices had “stabilised”, or at
least once the airlines had been given time to get their house in order, the
cost of fuel should have been incorporated into the cost of flying, and the “surcharge”
abolished. The price of jet fuel has, in fact, declined by 23.3% in North
America in the past twelve months, and globally by 27% (source: IATA fuel price analysis/November 28, 2014), yet this
farcical “surcharge” remains stubbornly in place.

For carriers, while the price of fuel appeared to be
inexorably climbing, folks accepted the additional fee, even though one
wondered what the actual airfare included if it did not incorporate the price
of gas; now, however, the charge sticks out like a sore thumb, and has
absolutely no place as a separate fee on top of the fare.

The fuel surcharge now has become an interesting way for
the carriers to play games; corporate discounts, agency performance payments
and other marketing strategies are all based on the “airfare”; low airfares
allow carriers to place disgraceful advertisements that imply travel at rates
that are often only half of the final price. They are, in short, a major player
in the airline industry’s arsenal of deceptive sales tactics.

Now, however, with the price of oil reducing to rates
that are even forcing gas stations to reduce their pump prices, the airlines
should be forced to explain why the surcharge should remain in place, and what the
precise financial levels that cause the surcharge are.

Surcharges are, or should be, temporary; they are imposed
in response to a specific and rapidly changing economic environment over which
they had no control. Now, however, they do have control of their pricing, and at
least should let the public know the price that fuel should reach that will
trigger its removal.